Tax insight

IRS Notice sheds light on construction rules for wind and solar credits

Insight
5 minute read
August 18, 2025

What happened?

The “One Big Beautiful Bill Act” (the Act) accelerated the termination of clean electricity production and investment credits for wind and solar projects under Sections 45Y and 48E (clean electricity credits). Unless construction begins before July 5, 2026, the Act requires wind and solar facilities to be placed in service before January 1, 2028.

In Notice 2025-42, Treasury and the IRS significantly changed existing guidance on the beginning of construction rules a taxpayer must use to claim the clean electricity credits for wind and solar facilities. Notice 2025-42 is effective for wind and solar facilities the construction of which begins on or after September 2, 2025, for which a taxpayer seeks to claim a clean electricity credit.

PwC professionals will discuss the impact of the Act and Notice 2025-42 on the Section 45Y and 48E credits during a Tax Readiness webcast on August 19, 2025, at 2:00 PM ET. Please register here.

Why is it relevant?

Restricting the beginning of construction rules for wind and many solar facilities to allow only the use of the Physical Work Test and Continuous Efforts Test (or Continuity Safe Harbor) to evidence beginning of construction will significantly alter the approach that a taxpayer must take to establish credit eligibility. The Physical Work Test permits the use of off-site work performed by a taxpayer or another person on behalf of the taxpayer for manufacture, construction, or production of a wind or solar facility. Off-site work will become more important and may place a significant strain on the supply chain for components required to construct wind and solar facilities. If this occurs, the industry may experience significant impacts to financing strategies and tax credit monetization of wind and solar facilities.

Actions to consider

Companies should immediately review all current and planned wind and solar projects to assess whether they can satisfy the Physical Work Test and Continuous Construction Test. Developers relying on the previously available Five Percent Safe Harbor and four-year Continuity Safe Harbor should reevaluate which projects can realistically meet the requirements of Notice 2025-42. Early engagement with contractors and suppliers will be essential so that physical work of a significant nature can be initiated in a timely manner and properly documented.